Changing the Future of Fuel: The Green Fuel Challenge

LPG is a by-product of oil refining and is also found in natural gas fields.

Environmental Benefits
The most significant environmental benefit is improved air quality – very few particulates and almost no sulphur are emitted. However, the climate change benefits of LPG are negligible.

Costs and Infrastructure 
There are currently over 600 LPG filling stations in the UK, a number that is increasing steadily and is expected to double in the next couple of years. Shell aim for 200 by 2002, BP for 300 by 2003.

Conventional cars under 1 year old can be converted to LPG, and LPG models are increasingly available direct from the manufacturer - such as Vauxhall’s “dual fuel” version of the Astra, which can run on both conventional fuels and LPG.

The Government already takes a much lower rate of tax from LPG – 13.4p a litre, about 33%, compared to 61p a litre, about 76% of the price of petrol. Consequently, LPG cars can travel 180 miles on £10 of fuel, compared to 106 miles for petrol cars. (www.est-powershift.org.uk/fuels&vehicles.htm) 

Verdict
Significant tax incentives and grants are already in place for LPG vehicles, whilst the infrastructure is developing at a reasonable pace.

To maintain the incentive in comparison to conventional fuels, the duty on LPG should be reduced by 3p a litre.

Environmental Benefits
Natural Gas vehicles bring benefits for both climate change and air quality. Greenpeace report that Natural Gas vehicles produce 24% less CO2 and 61% less NOx than petrol vehicles (climate benefits), and no particulates whatsoever (air quality benefits).

Natural Gas vehicles are also quieter, reducing the noise impact of night-time deliveries.

Costs and Infrastructure
The Government already takes a much lower rate of tax from NG – 13.4p a litre, compared to 61p a litre for petrol. Consequently, NG cars can travel 190 miles on £10 of fuel, compared to 106 miles for petrol cars.

NG is suited to large lorries and buses - the size of fuel tanks can make NG unsuitable for small vehicles. Conversion costs are around £10k - £12k for lorries and £2k for cars. As with LPG, grants are available from Powershift for 40 – 75% of the costs of buying or converting to a NG vehicle, which is estimated to have a two-year pay back period

The main obstacle to NG is the lack of re-fuelling infrastructure, with only 20 filling stations available at present – though some fleets have chosen to install their own infrastructure. Interestingly, BG is developing new home re-fuelling technology that can fit into a home garage.

Verdict
To maintain the incentive in comparison to conventional fuels, the duty on NG should be reduced by 3p a litre. Moreover, NG also has climate benefits over LPG, though is taxed at the same rate – so the Government should reduce the duty on NG by a further 3p, making a 6p reduction in total. 

The Government should also provide incentives to improve the availability of NG by funding an increase in the re-fuelling infrastructure. Annual grants of £20m a year would be sufficient to fund 200 new re-fuelling points a year, and additional Powershift grants could be made available for home re-fuelling technology.

Environmental Benefits 
Greenpeace estimate that Bio-diesel produces approximately 60% fewer greenhouse gas emissions than conventional fuels. A large reduction in particulate emissions also brings significant benefits for air quality – though higher NOx emissions make Bio-diesel less suited to urban areas. 

There is a concern that more environmentally beneficial agricultural land uses than oil seed rape exist, such as growing woody biofuels for heat and power generation. 

Costs and Infrastructure 
Bio-diesel can be used in existing diesel engines without modification, though there is not nearly enough agricultural land for all or even most diesel vehicles to rely on it.

In Germany there are 150,000 cars running on bio-diesel using over 1000 filling stations, whereas in the UK there are zero. We even export oil seed rape to France for use in bio-diesel, where it remains exempt from tax.

Bio-diesel currently receives no support from the Government. 

Verdict
The duty on bio-diesel should be set at below that for Natural Gas – tax incentives are particularly important because of the high price of bio-diesel input products. The Government should seek to open up a bio-diesel market in the UK, so that existing oil seed rape production no longer needs to be exported. However, large-scale production of oil seed rape for bio-diesel should be rejected as an option.
 

Environmental Benefits
Electric vehicles produce no exhaust pollution, so greenhouse gas emissions are dependent on the method used to generate the electricity. When using gas-powered generation, Greenpeace estimate savings in the region of 37% for CO2 and 79% for NOx compared to diesel. In addition, the lack of exhaust pollution brings significant urban air quality benefits.

Honda and Toyota have both introduced hybrid versions of the electric car, with a petrol engine working alongside an electric motor. The power pack is recharged as the car brakes or travels downhill, and is then used as additional power when accelerating. Consequently, the Honda Insight achieves 83 mpg, whilst the Toyota Prius produces around half-conventional CO2 emissions.

Costs and Infrastructure
There are a number of obstacles to the widespread adoption of electric vehicles, such as the lack of re-fuelling points and the short range of only 50 – 100 miles. However, many companies have demonstration models and new ‘high-performance’ batteries are being developed for greater range. Recently, Ford introduced a “Think” range of vehicles. 

Batteries can be expensive – usually leased for up to £100/ month, though the re-fuelling costs are very low. Powershift estimate that it costs 1p a mile on fuel for an electric car, compared to 10p a mile for a conventional petrol vehicle. 

Verdict
The Government should provide additional financial support to overcome the problems of cost and infrastructure, including Powershift grants for the purchase of new vehicles and funding for re-fuelling points. Extra environmental gains can be made by making grants for re-fuelling points conditional on renewable energy tariffs. 

Domestic use of electricity is only subject to a small level of tax (5%), so no alterations are required here.

The Automotive Industry is gearing itself up for a fuel cell future. All the major manufacturers have a fuel cell development programme, with the larger companies having spent sums in the region of $1bn each to date, with much more to come.¹  Ford and DaimlerChrysler estimate that they will have fuel cell vehicles in production by 2004, Honda by 2003.

Fuel Cells operate by combining hydrogen with oxygen to produce power, with emissions limited to harmless water vapour. In practice the hydrogen can be delivered to the fuel cell via different routes – the Petrol Fuel Cell, using conventional or reformulated petrol to deliver the hydrogen, and the pure Hydrogen Fuel Cell.

This briefing focuses on the pure Hydrogen Fuel Cell, since the Petrol Fuel Cell brings zero climate change benefit and should not be considered as part of the long term future.

Environmental Benefits
The hydrogen fuel cell vehicle has the potential to deliver the greatest environmental benefits of all the fuelling options. The level of climate change benefit is dependent on how the hydrogen is generated. If derived from natural gas, then savings of nearly 60% CO2 can be achieved. More significantly, generation from renewable energy opens up the prospect of climate-neutral transport.

Moreover, with vehicle emissions limited to water vapour and a massive reduction in particulates, the air quality benefits will be great.

Costs and Infrastructure
Hydrogen is the most efficient of all fuels, but also the most difficult to handle. There are significant hurdles in terms of storing the hydrogen in the vehicle, developing hydrogen refuelling infrastructure and agreeing industry wide standards.

For these reasons, hydrogen fuel cells are likely to be adopted first by buses, which are able to carry large fuel tanks and refuel at their own depots. Indeed, the first hydrogen fuel cell buses have completed trials in the USA, and a major trials are due to take place in Europe in 2002 when 30 Daimler buses will be introduced in 10 European cities.

The costs of a re-fuelling infrastructure are very high, though overheads are likely to fall with standardisation and mass production.

Verdict
The fuel cell using hydrogen generated from renewable energy must be considered the ‘end-game’ objective of green fuel development. 

They should not be preceded by the use of Petrol Fuel Cells - whilst these have the advantage of not requiring a new refuelling infrastructure, retrofitting for pure hydrogen could be as difficult and costly as developing the hydrogen infrastructure in the first place.

The Government should seek to play an active role in speeding up the adoption of hydrogen by establishing - as in the USA - a Hydrogen Working Group to study options and establish standards for hydrogen infrastructure. 

The Government should also send a strong market signal on the future of hydrogen fuels by stating its intention to tax gas-generated hydrogen lower than that for Natural Gas, and renewables-generated hydrogen at zero

Environmental Benefits
As with hydrogen fuel cells, this option brings significant air quality and climate change improvements. The level of climate change benefit is dependent on how the hydrogen is generated - if derived from natural gas, then savings of nearly 60% CO2 can be achieved, whilst generation from renewable energy opens up the prospect of climate-neutral transport

Costs and Infrastructure
BMW is undertaking significant development work and has 15 demonstration models, which it plans to offer as part of its 7-series range in 2001.

Moreover, BMW is planning liquid hydrogen refuelling infrastructure near its dealerships, expecting significant coverage in Germany by 2005.¹  This bypasses the need for conventional retailers to invest in hydrogen infrastructure.

Verdict
This option offers a potentially exciting alternative to the fuel cell future. As with the hydrogen fuel cell, SERA recommends that the Government states its intention to tax gas-generated hydrogen lower than that for Natural Gas, and renewables-generated hydrogen at zero.

In addition to these fuel tax reforms, there are other changes that the Government can make to accelerate the use of alternative fuel vehicles, such as a further reform of Vehicle Excise Duty. If a much larger variation of VED was established between different types of model, then the financial incentive to buy alternative fuel vehicles will be increased further – VED can have a big role to play in the uptake of energy efficient and alternative fuel vehicles. 

Establish hydrogen working group